Insurance
What’s driving Go Digit’s impressive growth
Summary
In just five years, Go Digit has grown to become the 13th largest non-life insurer in India. On the back of this growth, it filed for an IPO last week.
In its short five-year existence, India’s youngest non-life insurer shares a similarity with the early years of cricketer Virat Kohli, who is also its brand ambassador and a minority shareholder: a prodigious promise. In a fragmented industry of 31 insurers, Go Digit is already ranked 13th by gross direct premiums underwritten in 2022-23, according to industry body General Insurance Council. On the back of this consistent and high growth, Go Digit filed for an initial public offering (IPO) last week.
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Go Digit stands out from its peers in other ways, too. In an industry where going public came much later, it is doing so within five years. In an industry that chooses Mumbai or Delhi as the headquarters, it picked India’s tech capital Bengaluru.
Go Digit is promoted by Kamesh Goyal, who shepherded Bajaj Allianz Life Insurance in its early years, and is backed by the financial muscle of Indo-Canadian entrepreneur Prem Watsa. They aim to encash some of their shares through this issue, which is expected to value the company upwards of $4 billion. They also aim to raise ₹1,250 crore in new capital to spur growth.
From a growth perspective, 2021-22 was a big year for Go Digit. Its gross direct premium underwritten increased by 93%. It has carried that momentum into 2022-23. For the first four months, it has grown faster than all 12 insurers that lead it in market share. Amid that scorching growth, it is showing deftness in managing its business risk. As it expands, it will be challenged on both those fronts.
Growth cover
For now, Go Digit feels there is ample scope for it to grow. One part of that is weaning away business and market share from peers. Another part is expanding the non-life insurance market. For example, the draft IPO prospectus cites a study commissioned by the company that estimated that 62% of Indian vehicles were uninsured, against 13% in the US in 2019. With greater digitization of the road infrastructure and more linkages across the system (registration, pollution check, tolls and insurance), this is expected to come down.
The company is making marginal losses, but these should be seen in the context of its sharp pursuit of growth. If risk management is good and claims are reasonable, insurance tends to be a cash-positive business at the operational level. It has been for Go Digit. However, it has been investing big in building a sales network and brand, drawing new business and strengthening technology. It intends to continue doing so.
Segment concentration
At a segment level, the non-life insurance industry in India is a bit lopsided. In the first four months of 2022-23, just two of the eight major segments accounted for about two-thirds of premiums collected by the industry.
Health’s share was 38% and motor 28%. Go Digit, too, has a segment concentration. For the company, that is motor insurance, from where it collects about 51% of its premium. Health, by comparison, is just 11%.
Go Digit’s top three segments account for about 86% of its premium. By comparison, the top three segments of ICICI Lombard General, the leading private non-life insurer, account for about 76% of its premium and these are more in line with the industry breakup. Where Go Digit stands apart is liability insurance (legal and professional liability covers), a segment that accounts for about 23% of its premium and where it leads all insurers.
Risk management
When an insurer is growing fast, one concern is if it is building a sub-standard portfolio and paying out more as claims. Go Digit is competent and at the upper end. Its net claim ratio, or claims paid in a year as a percentage of premiums collected, for the nine-month period to December 2021 was 76.4%. It was ranked 13th on this count. The public sector insurers were near or above the danger mark of 100%. Acko, the other non-life insurer that debuted around the same time as Go Digit and follows an online model, was at 105%.
Go Digit is fusing technology actively in its operations, but has built a multi-channel distribution. In 2021-22, retail and corporate brokers led with 57% of premium collected, up from 42% in 2020-21. Go Digit is building a well-rounded non-life insurance business and is now readying itself to be judged by the market.
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